What Product Managers at Pepsi Got Wrong But You Won’t

by Chad McAllister

No one and no organization has a perfect record when it comes to releasing new products into the market. Failures are frequent — around 40% or so depending on the industry — and they happen at small companies, big companies, and experienced companies, including Pepsi.

In this interview, you’ll learn a simple and profound concept that every product manager and product marketer must understand. And, this is an easy one to get wrong. Even Pepsi got this wrong when they created a new product called Crystal Pepsi.

The simple part of the concept — don’t confuse your customer.

The profound part — when introducing something new or making a change, give your customer a reason.

My guest to explain this concept is Kyle B. Murray, the Vice Dean and Professor of Marketing at the Alberta School of Business. Kyle studies human judgment and decision making. His research uses the tools of experimental psychology and behavioral economics to better understand the choices that consumers make.

He is a co-author of an article explaining the mistake Pepsi made with Crystal Pepsi. When I read the article I recognized how important the concept is to product managers and contacted with Kyle to tell us about it himself.

In the discussion you will learn the:

Reason people didn’t purchase Crystal Pepsi.

Solution to the issue so you don’t make the same mistake.

Examples demonstrating the solution.

Here is a summary of the topics discussed and a link to the interview:

[2:30] You recently examined different types of innovations, such as sustaining vs. radical innovations. What caused you to research this? It all comes down to the consumer. We can describe it however we’d like when we are creating the products, but in the end, the consumer decides whether something is radical or something they already know.
[3:31] For listeners unfamiliar with consumer packaged-goods, can you describe the business and the rate of product introduction? Essentially, this industry represents anything you find in the grocery store that comes in a package and is aimed at consumers. It’s a broad category that employs some of the best marketers in the world who develop some great products. One industry group estimates that there are about 33,000 new products created each month. Innovation happens very quickly ranges from incremental changes like adjusting a color or adding a new option, to things that are truly radical. Many of those products fail, and some are only indented to be around for a few months to build a buzz and then disappear. Segments like potato chips and soft drinks allow you to innovate fairly quickly and put a new flavor or new version of a product out and see what the market thinks.
[8:25] Tell us about Crystal Pepsi and what makes it a useful example to learn from. Pepsi launched a new version of the product it had always made — the same Pepsi, just without any coloring. This seemed reasonable, given that products like 7Up and Sprite were successful and people were starting question what value the dye for color brought to the product. This was not intended to be a short-time product or new flavor; Pepsi had a plan for turning it into a billion-dollar brand. The reaction was people questioning why they would want a clear Pepsi and what was wrong with the dye in regular Pepsi.
[11:40] Why didn’t consumers purchase Crystal Pepsi? It was perceived to be really radical by the market, but it was really a superficial change to the product. This is a classic example of what drives product acceptance. If we see a new product being too different from what we expect to see, we go from being curious about them to feeling anxious about them. With Crystal Pepsi, most of the change was driven by one feature and Pepsi didn’t do a good job of explaining why they made that change. They launched the product with a lot of excitement in 1993, but didn’t explain why it was clear.

[16:00] What could Pepsi have done differently to make Cystal Pepsi more successful? People look for what is called a conjunctive enabler to help them make sense of something that’s different to them and Pepsi didn’t have that with this product.

We ran a taste test to study this where we told one group of testers that they had a clear cola and another group that they had a clear cola made with natural spring water. Just associating the idea of natural spring water with cola allowed people to put together on their own why it was clear.

[17:25] What are some other examples of new products that made the same mistake? One product we studied was vitamin-enriched coffee. It turns out that people don’t like the idea of vitamins in their coffee and questioned why they needed to be there. Part of what we’re trying to do is help people understand how the new product relates to the old one and let them know it’s not something they need to be anxious about. For example, if you make the vitamin-enriched coffee green, people like it more than they would if it looked like normal coffee. That’s the role that an enabler plays — it’s a way to help people connect the dots and make sense of a change. Another example we looked at was recyclable cell phones. In that case, the enabler was wrapping the phone in cardboard fiber. It helps resolve the anxiety people have when they see something that’s too far outside the realm of what they expect from a product. If there’s one feature that’s too weird, people don’t like it, but defining what’s too weird can be difficult. That line is what we are trying to understand through our research.
[25:34] Does the idea of product resistance extend beyond consumer packaged goods? This type of behavior happens in every industry. Regardless of how innovative or how well-designed a product might be, there has to be comfort among the consumer to make the product successful. One of the things that took a long time to catch on was the fact that homes with bathrooms in the master bedrooms didn’t have a door between the bedroom and the bathroom. A small thing can be enough to turn you off from a major investment like a home. We are trying to understand what we can do to make it seem right without having to have a sales pitch about it.
[27:24] How can product managers avoid creating this resistance moving forward? People become very habitual in how they shop. Product managers need to be aware of those habits and how much leeway they have to change them. For years, Amazon had a tab-based interface that was from 1995. It looked outdated, but people were used to using it so they didn’t change it. It’s akin to moving where the milk is in the grocery store or having soy milk in a separate part of the store. If a product is not in the place you expect it to be, then you don’t associate it with meeting the need that you have. Product managers should be aware of anxiety that comes with change and use enablers to help bridge the gap between the familiar and the unfamiliar.

Innovation Quote

“If I had asked people what they wanted, they would have said faster horses.” – Attributed to Henry Ford